Are Federal Student Loans Under Attack?

A Government and Private Sector Conflict

Over the last few months, Big Student Loan has been under fire. Almost simultaneously two big guns aimed their sights on the industry: first, New York Attorney General Andrew Cuomo in February, launched further inquiry into the alleged improper goings-on between some college financial aid administrators and student loan lenders. Innuendo had continued to swirl for some time alleging paybacks, stock options, and pay for inclusion deals for the infamous preferred lender lists published by schools.

Also in February, Senator Ted Kennedy had amassed reports of similar near scandals thick enough to make a novel. His solution? Write a bill—the Student Loan Sunshine Act—that could federally regulate the lender-school relationship, now clearly spun out of control.

Senate Cuts Deep Into Big Student Loan

Late Thursday, the Senate voted 78-18 to a slew of new cutbacks aimed at Big Student Loan, almost as punishment for the last few months of bad press and just plain bad business. Senators voted to make repayment of federal student loans forgivable for “public service employees,” like law enforcement and public school teachers, and to raise the amount for Pell Grant recipients up to “$5100 by next year, and $5400 by 2011,” read a New York Times article (“Senate Approves Major Overhaul of the Federal Student Aid Program,” Schemo). The major change most consumers will see is a reduction in their student loan interest rates over the next few years, and the FFELP lenders will likely feel the sting of sweeping profit cuts, the subsidies they earn from the feds. Seems that most Senators (and their constituents) think that enough is enough.

The few critics in the crowd argued that these newest reforms were a cleverly disguised ploy to undo the Federal Family Education Loan Program (FFELP). Senator Kennedy applauded the moves, arguing that students and parents have been increasingly burdened with the high cost of continually inflated tuition and costly student loan repayments, including the FFELs.

Colleges That Choose Affordability Over Money-Making

Well outside the political sphere other developments of a student loan variety also took shape. New England’s prestigious, Amherst College, officially did away with institutional student loans and replaced them, 100%, with scholarships. The move is a measured step by AC to make their education more affordable for all students. Only two other schools, reported the Boston Herald, have taken such bold steps–Princeton University and Davidson College.

Leave a comment